Update on Insurance Costs - September 2024

Inflation now sits at 3.3% a welcomed reduction from our June update, where it was sitting at 4%. We are now close to the Reserve Bank’s target range of 1%-3%. A significant aspect of the overall inflation picture remains non-tradable inflation, which currently stands at 5.4% (Stats NZ – June 24) a slight reduction from 5.8 when we reported in June. Non-tradable inflation includes items such as insurance premiums and council rates.

We have all experienced, rising and at times somewhat steep insurance premium adjustments over the past 12-24 months.However, we are now starting to observe certain policy classes (like commercial property and/or liability premiums) seeing premiums flattening out and we expect a further broadening out and flattening of premiums across many policy classes heading into 2025. Regionally we are still seeing certain parts of NZ impacted more severely by steeper rate change vs other regions.

This is of course a prediction and assumes no large scale catastrophe - natural disasters impact NZ and the insurance market for the next 6-12 months.

We know how tough it is for everyone, our families and our businesses and we are battling with Insurers to keep premium increases to an absolute minimum and/or not applied at all.

Challenge in the insurance space:

• Inflationary costs within claim settlements have risen, given the impact of inflation (in the past few years the cost to rebuild your home following a fire is/has been more expensive due to rising construction costs).
• Reinsurance costs make up a large portion of our overall insurance premiums. We expect reinsurance costs to flatten out as interest rates reduce and capacity rises. The financial returns achieved by many Insurers and reinsurers alike has recently improved significantly.
• Reinsurance is obtained from global reinsurers and then mainly distributed in NZ by our Australian parent insurance companies. Risk appetite, appetite for diversification into the Australia/NZ markets and a desired return on investment versus cash, bonds and equities are all factors that impact the price of reinsurance.
• Climate change and the related cost is starting to influence reinsurance markets and we will need to adjust our total reliance on this model or they will do it for us. Property owners, councils and central government all need to plan and contribute towards reducing and managing climate risk. It is likely that insurers will put further policy restrictions in place around flood prone areas to reduce their exposure to large-scale flood costs.
• The Fire and Emergency (FENZ) levy has increased by 12.7% from 01 July 2024 – The levy is payable on all contracts of fire insurance for property in New Zealand and collected via applicable insurance policies FENZ Levy detail

Green Shoots - Some Positives To Acknowledge

We can potentially agree that inflation has peaked and we are now in a rate cutting cycle.

• Supply chain issues are subsiding, leading to a decrease in construction inflation allowances when compared to the past couple of years. This means your sum insured in many cases should remain stable. Sum insured adjustments have certainly added to the overall insurance cost picture in the past 2-3 years.
• Since the January/February 2023 cyclone and floods in Auckland and Hawkes Bay, we haven't experienced another large-scale weather event. This has helped stabilise the insurance market for now, potentially leading to premiums flattening out.
• Recent reinsurance commentary indicates a softer period of rising costs, which may allow local insurers the ability to redistribute reinsurance in a more stable fashion. All things being equal we are hoping for marginal price changes coming up later in 2024/25, which will help ‘flatten out’ the premium curve.
• We are also seeing new markets enter NZ for commercial related risk, likely due to more attractive current pricing, which could benefit certain commercial clients.

Our Tips for Navigating the Current Insurance Cycle and how aibGroup can help.

Talk to our advisers about your situation, assets and needs. We understand that budgets are stretched, and it’s not easy.

• For buildings and houses, obtain an insurance valuation to help eliminate the guesswork from online tools or outdated inflation rates. Using a Valuer can also help protect you if the value is incorrect.
• Our team will present available options, such as higher excesses, and provide you with the right advice on your valuable cover. The benefits of using our services, obtaining advice, and building a relationship with your insurer and us remains crucial today. Contacting us is easy, and we always work as your advocate, aiming for a close, trustworthy relationship.

We review your cover and make recommendations and amendments as soon as possible. Our highly experienced claims team works independently from the insurer to ensure you get the full benefits from your policy when needed.

Other ways we can add value to your insurance journey include:

• Access to fast-track claims processes with some insurers, and close collaboration with insurance assessors for non-fast-track claims to ensure your claims are handled quickly and correctly. We will regularly update you on the status of your claim(s).
• Referrals to insurance valuers at discounted rates through our partnership with NZbrokers.
• Our years of experience and understanding of the local insurance market, which have delivered many positive results for clients over the years.
• A team culture focused on ongoing development, keeping our finger on the pulse.

Additionally, like many of our clients, we support local non-profit community organisations through sponsorship and volunteering, continuing to build those partnerships and connections.

Contact Us Today
Personal Lines: [email protected]
Commercial Risk: [email protected]